AutoNation CEO Jackson: Dealer lots are too full
DETROIT -- Mike Jackson says 2014 is shaping up as a test of automakers' discipline in coming to grips with a slower-growing market.
The AutoNation CEO said in a speech at the Automotive News World Congress that the auto industry this year is unlikely to match the growth rates of recent years, and that inventory levels must be contained to prevent a lapse into the destructive cycles of the past.
Manufacturers must dial back production and avoid heavy incentive programs "so that when the market becomes more difficult in years ahead, we don't get caught like we did in 2007 and 2008, which then exaggerates the downturn and your ability to react to changing consumer tastes," Jackson said during an interview after his speech.
This year will be "the first real test after four easy years of a million units of growth," said Jackson. "It will test: Do we really have the discipline to run this business in a rational way for the long term?"
Jackson predicts growth of 3 to 5 percent over last year's light-vehicle retail sales of 15.6 million units, up 8 percent from 2012. Meanwhile, he notes, dealers are sitting on retail inventory of about 3.5 million units -- or about $100 billion worth of unsold goods, thanks to automakers cranking out vehicles to support the double-digit growth of the past few years.
"We're not pushing back, because the cost of money is free, but is this any way to run a business?" Jackson said. "Is this where we want it to end up again?"
He declined to name manufacturers that have overproduced but said he has talked to some of them about production levels.
"Maybe it would be a good idea if we as an industry recognized revenue as the actual sale to a customer," Jackson said. "That would be a transformation."
Automakers won't be able to force $120 billion of inventory on dealers this year, he said. "I don't know where we're going to park them. The asphalt's full."
Jackson repeated his criticisms of stair-step incentive programs. He said such incentives work against the consumer's desire for a fair and transparent price.
"We've had retro programs where the next incremental unit for our company was [worth] $400,000," Jackson said. "I would pay you to take the car. 'Please! Here's $20,000. Buy the car!' It's a crazy way to run a business."
Main point: Automakers need to show discipline and ease up on production because dealers already are flooded with too much inventory.
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